The Tribune Democrat, Johnstown, PA

Editorials

January 31, 2014

Stephen Herzenberg | Unaffordable tax cut, not pensions, at root of budget woes

JOHNSTOWN — The state Legislature recently kicked off the legislative session with a renewed call for “reforms” to the public pension system. Reform sounds like a positive thing, and public pensions are an easy target in political talking points about minimizing our state’s budget deficit.

But what pension reform really means is slashing benefits for thousands of public workers and eroding their retirement security. Not only that, so-called pension reforms won’t cure Pennsylvania’s budget problems because they fail to address what truly needs to be fixed.

Contrary to what the public has been led to believe, our commonwealth’s teachers, nurses, firefighters and other public employees are not being paid exorbitant pensions that weigh down our budget.

While working hard in service to their communities, these workers fund a significant portion of their own pensions. They contribute to their retirement in every paycheck, paying nearly twice as much for pensions as their employers in the 2000s, the opposite of workers in other states who paid only half of what their employers did.

In addition, unlike Social Security, Pennsylvania public retirees get no annual in-crease to compensate for inflation. As a result, the buying power of pension benefits falls every year. A teacher who retired 10 years ago now gets a pension check worth 20 percent less in inflation-adjusted dollars.

Public workers’ hefty contributions to their own pensions do provide them with a modest income – averaging $24,000 per year – that allows them to be financially stable in retirement. It also enables them to buy goods and services that sustain local businesses and avoid taking financial support from the state to stay afloat.

As well as being unfair, cutting pensions promised to Pennsylvania’s public servants after years of service to their communities would also fail to solve the state’s budget woes. As in states across the country, the idea that Pennsylvania must choose between filling holes in the budget and fulfilling its obligation to public workers and retirees is a false choice because it ignores a glaring drain on our state’s economy: the billions of dollars given away each year to big, profitable corporations because of corporate tax cuts and loopholes enacted by Governors Ed Rendell and Tom Corbett.

Worse, Pennsylvania’s tax cuts ignore a wealth of experience and research showing that lower business taxes do not improve state job performance. This is partly because the cuts deprive states of funds needed to invest in infrastructure and education.

Could this help explain Pennsylvania’s recent declining job ranking?

To fix our budget problems, we have to look not just at spending but at revenue decisions as well. Over the past decade, a series of tax cuts have whittled away at corporate tax revenue. These cuts have imposed a much larger average cost to the annual state budget than pension contributions.

According to estimates by the Pennsylvania Budget and Policy Center, corporate tax changes and reductions over the past decade cost the state $3.2 billion in 2013-14, and will cost almost $4 billion by 2018-19.

If corporate taxes had grown at the same rate as other taxes, we could all but eliminate the structural deficit identified by the state Independent Fiscal Office. If the state had enacted a drilling tax similar to every other state with natural gas resources, Pennsylvania would have additional revenue.

As a result of unaffordable corporate tax cuts, the Legislature forces itself to make painful, and unnecessary, choices. By slashing public pensions and making deep cuts to K-12 education, colleges and universities, economic development, and human services, while simultaneously approving new corporate tax cuts, the Legislature is acting like a homeowner who opens all the windows, blasts the furnace and then blames increasing oil prices for higher heating bills.

Lawmakers must say “no” to additional business tax cuts and consider raising revenue from delaying or reversing cuts already on the books, as well as enacting a real drilling tax. Failing that, we can expect five more years of largely self-induced crises.

It is often stated that budgets are a matter of priorities.  In Pennsylvania, politically influential corporations are prioritized over teachers and other public employees who dedicate their lives to public service, and over the children and small businesses that depend on investments in the future. Pennsylvania needs more than ill-advised pension reform; we need a shift in priorities.

Stephen Herzenberg, Ph.D., is an economist and executive director of the Keystone Research Center.

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